Transcript Example - Economics

Economics Semester Final
Review
2014
Ability to pay principle of Taxation
• Definition: those who earn money and can
pay taxes, should pay taxes
– Example: Progressive Tax – more income, more
tax.
Adam Smith
Wealth of Nations
• Explanations:
– Proclaims the self regulating nature of the market
– Lack of government intervention
– Motivated by profit incentive
Advantages of Corporations
• Explanation:
– Limited liability
– Longevity
– Ability to generate capital
Aggregate Demand
• Definition: the total demand of a good or
service for the entire market
• Examples:
– Price levels increase – aggregate demand
decreases
– Price levels decrease – aggregate demand
increases
Aggregate Supply
• Definition: The total supply of a product or
service for the entire market
• Examples:
– Consumers save – aggregate supply decreases
– Consumers spend – aggregate supply increases
Benefits Cost
• Definition: The financial burden an employer
pays for employee benefits
• Example:
– Rising benefits costs = decreasing business profits
into
– Cost passed on to emplyees to maximize profit
Benefits – Received - Principle
• Definition: Those who benefit should pay a tax
or fee for the activity
• Examples:
– Wilderness pass for hiking
– Tax on gas for road upkeep
Black Market
• Definition: Any illegal transaction outside the
legal market
• Examples:
– Illegal drug
– Bootlegging due to prohibition or rationing
Blue Collar Worker
• Definition: A working class person who
performs manual Labor
• Example:
– Plumber
– Human Capital not physical capital
Bonds
• Definition: A short term loan used by
Governments and Corporations to fund
projects
• Examples:
– Bond to fill pot holes
– 3 to 6 month term
Budget Surplus
• Definition: When revenues exceed
expenditures
• Example:
– Revue $100 – Expenditures $90 = $10 surplus
Business Cycle
• Definition: the business cycle describes the
phases of growth and decline in the economy
• Examples:
– High consumer confidence = and expansionary
cycle
– Low consumer confidence creates a
contractionary cylce
Capital Deepening
• Definition: A term used to describe how
capital per worker is increasing
• Example:
– Paying for employee training
– Permitting workers to share one job
Capital
• Definition: Already produced goods that are
used to produce other goods or services
• Example:
– Wood used to build a house
– Robot used to build a car
Cartel
• Definition: An explicit agreement among
producers to fix prices and output
• Example:
– OPEC oil Cartel
– Mexican drug cartels
Centrally Planned Economy
• Definition: A economy in which all economic
decisions are made by the government
• Example
– Soviet Era Russia
– Communist North Korea
Changes in the Labor Force
• Definition: When the type of labor changes or
shifts to another area
• Examples:
– Moving from manufacturing to service labor
– Outsourcing for cheaper labor
Changing Labor Force
• Definition: When they type of employment
changes or employment is inconsistent
• Example:
– Moving from manufacturing to service jobs
– Lack of job security
Characteristics of Developed/LDC’s
• Definitions: Developed countries are those with a
high standard of living, advanced tech. and extensive
infrastructure. LDC’s are countries with a low
standard of living, and poor infrastructure.
• Example:
– United States (Developed)
• Affected by conditions in LDC due to globalization
– Cambodia (LDC)
• Affects developed countries with cheap labor and
goods
Chronic inflation
• Definition: The experience of high inflation
(10% +) for a prolonged period of time
(Several years or decades)
• Example:
– Business assets loses value
– Cannot anticipate costs
– No end in site
Collective Bargaining
• Definition: When Unionized workers and
management negotiate a new contract
• Example:
– Redlands teacher bargain a new contract with the
district each year
Comparative Advantage
• Definition: The ability of an individual or
business to produce a good of service at a
lower cost than anyone else
• Example:
– First explained by David Ricardo
– Leads to greater interdependence among
countries due to trade
due to specialization
Competition
• Definition: The rivalry among producers and
consumers to increase efficiency in the market
• Example
– Producers produce at the lowest cost
– Consumers use search time to get the best price
Conservation of Scarce Resources
• Definition: The allocation of resources to
maximize production and profit
• Examples
– Resources are used for highly valued products
– New methods and technology can create
efficiency
Contractionary Fiscal Policy
• Definition: Government policy of increasing
taxes and decreasing spending to slow the
economy
• Example:
– Increasing income tax to reduce disposable
income
– Decrease # of projects to reduce
employment
Cooperative
• Definition: A business organization that is
owned and operated by the people who work
there or the people who use its services
• Examples
– Ocean Spray
– Cabot Creamery
Credit Card
• Definition: Any card that may be used repeatedly
to borrow money or purchase goods and services
with the promise of repayment
• Example:
– The card company pays for the purchase and you
pay the card company plus interest
Crowding-out Effect
• Definition: The increase of gov.’t spending
that results in less money for businesses to
invest
• Example
– Less money for individual households to borrow
– Can lead to large government budget deficits and
debt
Decline of Labor
• Definition: The decrease in the use of labor
through outsourcing or mechanization
• Example:
– Use of robots to build cars
– Manufacturing shifting to overseas markets to
reduce costs
Depreciation
• Definition: The Idea that when a the value of
a country’s currency goes down its products
become less expensive to other countries
• Example:
– Illustrated in currency exchange rates
– Cheap goods from China
Discount Rate
• Definition: The interest rate charge to banks
and depositories by the federal reserve
• Example:
– The current discount rate is 0.75%
Disequilibrium
• Definition: This describes the market when
the quantity supplied is not equal to the
quantity demanded
• Example:
– Excess supply = surplus
– Excess demand = shortage
Diversification
• Definition: Reducing risk by investing in a
variety of assets
• Example:
– Mutual Funds
– Invest in stocks, bonds, real estate
Effects of International Competition
• Definition: The Globalization of trade has had
a large effect on competition
• Examples:
– Outsourcing of unskilled manufacturing
– An increased need for skilled labor
Efficiency
• Definition: the use of resources to maximize
the production of goods and services
• Example:
– Creates lowest prices for consumers
– Leads to maximum profit for producers
Elasticity of Supply
• Definition: The responsiveness of the quantity
supplied of a good or service to change in
price
• Example:
– Inelastic products take long time periods to
increase supply
– Elastic products production can increase quickly
Entitlement
• Definition: A social welfare program that
providing payments to people who meet
certain eligibility requirements
• Example:
– Social Security
– WIC
– EBT/Food Stamps
Equilibrium
• Definition: A state in the market when
quantity supplied is equal to the quantity
demanded
• Example:
– 20,000 cars produced and 20,000 puchased
Equilibrium / Shifts of Curves
• No definition must be able to determine shifts
in supply and demand of specific scenarios
• Example:
– Shortages may decrease supply and increase price
– New tech. may increase supply and decrease price
European Union EU/NAFTA
• Definition: These constitute the major trading
partners for the U.S. along with Japan
• Example:
– The EU is a European Economic Zone
– NAFTA consists of the U.S., Canada and Mexico
Excess Reserves
• Definition: The amount of reserves a bank
keeps on hand over the reserve requirement
• Example
– Reserve rate 10%, bank keeps 20%
– The reduces the amount of money in the market
Expansionary Fiscal Policy
• Definition: The use of government taxing and
spending to increase output
• Example:
– Decrease income tax will increase spendable
income
– New gov. projects increase employment
Externality
• Definition: A cost or benefit that is incurred
by a party that has no choice in the economic
decision making process
• Example:
– Pollution from a nearby factory (Negative)
– City repaving the roads (Positive)
Factors of Production
• Definition: The factors of production are land,
labor, and capital
• Example:
– Human capital – knowledge and ability of an
individual
– Physical capital – factory, machinery
Federal Open Market Committee
• Definition: Arm of the Federal Reserve that
oversees the buying and selling of Gov. bonds
• Example:
– Buying bonds increases the money supply
– Selling bonds decreases the money supply
Financial Intermediaries
• Definition: A financial institution such as a
bank that helps individuals/firms save,
borrow, or invest assets
• Example:
– Bank
– Capital markets
Fixed Cost
• Definition: Cost that do not change with
regards to the level of output
• Example:
– Rent or mortgage
– Loan payment on a fixed loan
Fixed Exchange-rate System
• Definition: A currency system in which each
countries tries and keep the value of its
currency constant against other currencies
• Example:
– Euro
– U.S. Dollar
– Yen
Flexible Exchange-rate System
• Definition: A system in which the value of a
countries currency is determined by the
supply and demand for that currency
• Example:
– Strong currency = high demand = high prices for
goods and services
– Weak currency =low demand = low prices on
goods and services
Fringe Benefit
• Definition: A payment, other than salary for
services performed
• Example:
– Health benefits
– Vacation days, sick leave
Government / Income redistribution
• Definitions: The use of government programs
to redistribute wealth and raise the standard
of living for the poor
• Example:
– Social Security to the elderly and disabled
– Welfare (WIC, SNAP) for the poor
Government Intervention in the
Economy
• Definition: The government intervenes in the
economy as a stabilizing effect
• Examples
– 20% of economic production and consumption
– Use of Monetary and Fiscal policy
– Regulation to monitor business practices promote
•
innovation
Gross Domestic Product
• Definition: The total dollar amount of all
goods and services produced in a given year
• Example:
– Gage economic well – being
– Nominal includes price changes
– Real GDP eliminates price
changes
expenditure approach
more useful
Guns-or-Butter
• Definition: The decision of a government to
produce military goods or consumer goods
• Example:
– Subsidized corn production
– Subsidized fighter jet production
– Trade off may lead to shortages in ones area
Incidence of Tax
• Definition: The decision of who will pay the
burden of a tax
• Example:
– Income Tax
• Individual or business
– Import Tax
• Passed on to consumer
Income Distribution/Lorenz Curve
• Definition: The Lorenz Curve shows how
income is spread out in a country
• Example
– Even straight line
– Uneven curved line
Inelasticity
• Definition: The nature of a product supply or
demand not to change due to a change in
price
• Example:
– Producers supply does not change (agriculture)
– Consumer demand does not change (Gas, Water)
Infant Industry
• Definition: A young or developing industry
• Example:
– Alternative energy
– Usually protected by gov. with trade barriers
inflation
• Definition: A general increase in the level of
prices
• Example:
– The current inflation rate is 2%
– Hyper inflation 10% +
Information / Free Enterprise
• Definition: The requirement of industries to
follow public discloser laws about their
products
• Example:
– Warning labels
– Efficiency rates
– Ingredients in food
Interest Group
• Definition: A private organization that tries to
influence elected officials to act or vote in
ways that will benefit the group
• Examples:
– NEA (education issues)
– PETA (ethical treatment of Animals)
Interest Rate and Spending
• Definition: The idea that high or low interest
rates will affect the money supply and
demand for money
• Example:
– High rates equal low demand
– Low Rates equal higher demand
Interest Rates and Credit
• Definition: The idea that the better your
credit rating the lower your interest rate
• Example:
– Better rating = more money borrowed = more
money spent in the marketplace
– Bad rating = less money borrowed = less money
spent in the marketplace
Investment and Free Enterprise
• Definition: The idea that investment in the
free market promotes economic growth
• Example:
– Purchasing stock in a company
– Borrowing money to purchase new more efficient
technology
Labor and Management
• Definition: In a union shop labor and
management periodically negotiate a contract
• Example:
– Negotiation (discussion)
– Mediation (advice from a independent third party)
– Arbitration (legally binding decision from a third
party)
Law of Demand
• Definition: The idea that demand will increase
if prices fall and decrease as prices rise
• Example:
– Leads to equilibrium in the market
– Effects purchasing power (ability to buy goods)
– Determines price and quantity supplied
LDC / International Institutions
• Definition: Organizations that give aid to LDCs
to increase development
• Examples:
– World Bank
– UN Development Program
– IMF
Learning Effect
• Definition: The idea that the more you learn,
the more you earn
• Example
– Formal education (College, Graduate school)
– Informal education (Trade School, Military
training)
Limits on Fiscal Policy
• Definition: The idea that Fiscal policy alone
cannot fix the economy
• Example:
– Takes time for congress to pass legislation and
implement
– Must be combined with monetary policy
Literacy Rate
• Definition: The percentage of people in a
country who can read and write per 1000
• Example:
– U.S. Literacy Rate 99% over 15
– Increases Human Capital and production
Location of Production Facilities
• Definition: The practice of locating
manufacturing facilities to cut costs and
maximize profit
• Example
– Originally near river for power source
– Close to consumers
Long and Short Term Interest Rates
• Definition: The use of monetary policy to
control interest rates
• Example:
– Based on the discount rate
– Controlled by the Fed
Mandatory vs. Discretionary Spending
• Definition: Mandatory spending programs are
required by law, Discretionary spending is not
• Example
– Mandatory (Social Security, unemployment,
interest on the debt)
– Discretionary (Military, Education, Transportation)
Market Economy
• Definition: A type of economic system that is
nearly free of govt. interference
• Example:
– Drives innovation and a wide variety of products
– Market self regulates
– Govt. may provide what the market does not
(Security)
Markets
• Definition: Markets are where producers and
consumers meet to exchange goods and
services for compensation
• Example
– Consumers purchase goods and services
– Producers spell specialized goods and services
Measuring Levels of Development
• Definition: Measuring the level of
development is done through analysis of a
countries statistical data
• Example
– Tells the economic wellbeing of the country
– GDP, Infrastructure, Life expectancy
Minimum Wage
• Definition: The lowest wage allowed by law
• Example
– Ca. $8.00
– National $7.25
– Can lead to inflation or Unemployment
Mixed Economy
• Definition: An economic system in which
there are both Free market and Command
economic practices
• Example
– US (government makes up 20% of market
– Soviet Union during transition (Command to
Mixed)
Monetary Policy
• Definition: The use of buying and selling of
bonds and manipulation of interest rates and
reserve requirements to stabilize the economy
• Example
– Expansionary (economy grows)
– Contractionary (economy shrinks)
– Lessen the effects of inflation or recession
Monopolistic Competition
• Definition: Many companies selling similar
products that are close substitutes
• Example:
– Fast food restaurants
– Hair salons
National Debt
• Definition: The total dollar amount that a
country owes its creditors
• Example:
– Harder for govt. to fund projects
– Less money available for investment
Nonprofit Business Organization
• Definition: A business organization that
serves some public purpose and therefore
receives special treatment under the law
• Example:
– Cattle’s Association promoting eating beef
– Orange growers association promoting the
benefits of orange juice
Opportunity Cost / Trade-offs
• Definition: The most desirable option given
up when making a decision
• Example
– Trading sleeping in for going to school
– Not going surfing to mow your lawn
Patent
• Definition: A license that gives the inventor of
a new product the exclusive right to sell it for
a certain period of time
• Example:
– Patents on new medications or technology
– Incentive for innovation
Per Capita Gross Domestic Product
• Definition: The average income per person in
a given country
• Example:
– U.S. per capita GDP $51,749
– Can be affected by population size
Perfect Competition
• Definition: A market system in which a large
number of firms produce the same product
• Example
– Markets for Farm products
– Stocks sold on the stock exchange
Physical Capital
• Definition: Already produced Items that are
used to produce new products
• Example
– Tractor for producing crops
– Machines for producing cars
– Manufacturing plants
Price ceiling
• Definition: The maximum price that can be
legally charged for a good or service
• Example:
– Expensive items that are essential
• Utilities
• Gasoline
• Rent
Price Discrimination
• Definition: Divisions of customers into groups
depending on how much they will pay for a
good
• Example:
– Ferrari (Wealthy Individuals)
– Economy Car (Middle class, frugal)
– Bicycle (Poor or fitness oriented)
Prices
• Definition: The dollar amount required for
purchase of an item
• Example:
– Regulates market for efficient allocation of
resources
– Sellers maximize profit
– Buyer maximize savings
Production Possibilities Graph
• Definition: A graph that shows alternative
ways to use an economy’s resources
• Example:
– Building schools vs. building hospitals
– Guns or Butter
Protectionism
• Definition: The use of trade barriers to
protect a nation’s industries from foreign
competition
• Example:
– National Defense
– Jobs
– Infant Industries
Public Goods
• Definition: A shared good or service that
would be impractical to make consumers pay
individually and to exclude non-payers
• Example:
– National Defense
– National Parks
Public Interest
• Definition: Concerns of the public as a whole
• Example:
– Social, environmental, security, et.
– Influences supply through purchases
Regulation
• Definition: Government intervention in the
market that affects the production of a good
• Example:
– Govt. regulation of utility companies
– Environmental protection laws
– Can reduce profits for a business
Risk and Return
• Definition: The idea that a high risk
investment will bring a high rate of return and
a low risk investment will have a low return
• Example:
– CD’s, Bonds, Savings Accounts (Low Risk)
– Startup companies, commodities
(Low risk)
Seasonal Unemployment
• Definition: Unemployment caused by harvest
schedules, holidays or when businesses slow
down or shut down for the season
• Example:
– Christmas shopping season
– Ski season
Structural Unemployment
• Definition: Unemployment that is cause by a
person not having the right skills for the jobs
available
• Example:
– Globalization and unskilled labor demand moving
to LDC’s
– Lack of Education
Sole Proprietorship
• Definition: A business owned and managed by
a single individual
• Example:
– Local businesses (Bakery, restaurants, bike shop)
– Advantages
• Easy start up and shut down
• Full control
• Least regulated
Specialization
• The concentration of production effort of
individuals and firms on a relatively few
number of activities
• Example:
– Athletes specialize in one sport
– Ford specializes in automobiles
– Creates efficient resource allocation
Supply Curve
• Definition: A graph in the quantity supplied of
a good at different prices
• Example
– 200 slices of pizza supplied at $1.50
– Change in price causes the supply to shift up or
down
– Determinants of supply cause a shift right or left
Supply in the Global Market
• Definition: The effect that the Global Market
has on the U.S. economy
• Examples:
– Globalization has lead to interdependence among
nations
– Oil Embargo by O.P.E.C
– Conflict in the Middle East
Sustainable Development
• Definition: The ability of LDC’s to have
economic growth with regard to efficient use
of resources and environmental concerns
• Examples:
– Rapid growth leads to inefficient use of resources
– Disregard for the environment can lead to
resource depletion and population decline